In another age, Justice Oliver Wendell Holmes said "Taxes are what we pay for civilized society." If that is so, the systematic dismantling of a government's ability to tax is a calculated recipe for anarchy.
For at least 20 years, the right wing has mounted a sustained attack on the very concept of taxation by the federal government. Estate taxes, which are a burden only to the fortunate heirs of dead rich people, were derided as "death taxes" and slashed. Capital gains tax rates, which burden only the income earned by wealth, have been cut while taxes on the income earned by wealth have gone up as a percentage of total revenues. The FICA tax, which funds Social Security, is highly regressive, since it taxes only wages below $107,000 a year. Middle-income wages are thus taxed at almost twice the rate of investment income. Not to be outdone, hedge fund managers have contrived to have their income -- which is figured as a percentage of their clients' investments -- taxed as though they themselves had invested it, at capital gains rates.
But they aren't satisfied with that. The IRS enforcement budget has not kept up with the multiplication of esoteric theories of tax avoidance, and that's not an accident. This week the FAA lost its authority to collect airline taxes, costing over $1 billion in revenue that will be pocketed by the airlines. And that's on top of the debt ceiling deal, which will slash government programs to pay for past tax giveaways, without any new revenue.
So what does the Obama administration do? Propose a "tax holiday," of course. Payroll (FICA) taxes -- which fund Social Security -- would be cut in the vain hope that to do so will cause big business to finally come through with job creation. This would be a "one time only" giveaway -- just like the one-time-only giveaway that the Bush administration engineered a few years ago.
Now, imagine that you have succeeded in slashing the ICE budget so that immigrants can cross the border with impunity, and then reduced the penalties for illegal immigration, only to propose a "one time only" amnesty for previous illegal immigrants. What do you think the reaction would be?
But that's our nutty political system. Money has to be free to flow across borders, because it "creates jobs" -- even though it doesn't -- but people have to be kept in line.
I'm self-employed, so I pay twice the FICA tax that an employee pays. But I'm not in favor of this insane perversion of tax policy.
The basic idea of taxation is to assess a tax on income, property or economic transactions in order to fund government. We also use tax policy to achieve societal goals -- the mortgage interest deduction is a prime example. There is no economic rationale for letting homeowners escape taxation by taking out huge mortgages, while renters get no federal tax benefit. Its sole purpose is to encourage people to buy homes on credit.
The idea that investment income ("capital gains") should be taxed at a lower rate is similarly ludicrous. Whether income consists of wages or stock profits, a dollar is a dollar and the recipient has that much more money to spend. You'd think we would want to tax wages at a lower rate because people have to actually work hard for that money -- or as an incentive to get people to work longer hours. But for some reason, it has been decided that investors need an extra boost from the IRS to make it worth their while to buy securities. Capital gains are often falsely characterized as coming from people investing in new businesses -- that's true in part, but most capital gains come from sales of stock by one investor to another, which makes no capital available to the company to invest in new equipment or create new jobs.
Obama's proposed "tax holiday" will have no permanent effect on the economy, other than to bleed more money from the Social Security trust fund. Tax holidays do not help the economy in the long run, because one-off events never do. Businesses continually bleat on about how they value "certainty" in government policy. One-time giveaways don't create certainty for businesses any more than an amnesty does for immigrants.
If Congress really wanted to use tax policy to create jobs for Americans, the solution would be simple: Have every business report the number of full-time workers it employed in the US last year, and this year. If that number goes up by 100 workers, let the business take a $100,000 credit on its taxes; if the number goes down by 100 workers, the business pays $100,000 more. That's a real deal -- we pay you to create jobs that make more money for your business, but if you try to game the system and fire them next year, you'll pay for that.
But the Tea Party crowd aren't interested in having the government do anything to create jobs. Their only interest is in dismantling government by choking off its revenue, no matter how. If unemployment goes up, they will blame the unemployed for being lazy, not because they really believe it, but because it fuels the self-serving idea that something other than greed lies behind outsourcing low-wage jobs and robbing the poor of what little they have left.